Highlights from FDIC Underserved Banking Study

The Federal Deposit Insurance Corporation (FDIC) conducted its biennial survey on unbanked and underbanked households in the United States: the FDIC National Survey of Unbanked and Underbanked Households. The latest statistics are from 2017 and relied on responses from more than 35,000 American households. According to the FDIC, the organization is “committed to expanding Americans’ access to safe, secure, and affordable banking services.” The survey sought to gather valuable insight into the unbanked and underbanked population, which can then be utilized by policymakers and financial companies to enhance access to financial assistance.

1 in 3 African-American households are underbanked. 1 in 6 Hispanic households are unbanked. Interestingly, African-American and Hispanic small business ownership rates are soaring, but financing continues to be a challenge. Studies show that minority-owned businesses receive lower loan amounts than non-minorities and consequently have to use more of their personal savings or credit to run their business. For many minority-owned businesses, alternative financing has become the preferred way to grow their business and we have helped thousands of owners get access to some of the best rates and terms for their business — sometimes approving AND funding the small business loans in as little as 24 hours!

Statistics on Bank Usage in American Homes

The study found that 6.5% of households in the U.S. are unbanked — which means that no one residing in that home has either a checking or savings account. This amounts to 8.4 million households. Since this FDIC survey began in 2009, 2017 showed the lowest level of unbanking.

Being underbanked is a different phenomenon — this means that the household may have a checking and/or savings account at a bank, but they also rely on financial services provided outside of banks, including: money orders, check cashing services, payday loans, pawn shop loans, refund anticipation loans, rent-to-own services, international remittances, and/or auto title loans. In 2017, 24.2 million households were underbanked, or 18.7%. This is 1.2% lower than the 2015 data for underbanked households.

Conversely, 68.4% of U.S. households are considered fully banked. These families/individuals have a bank account and did not use alternative financial solutions as outlined in the underbanked category.

Underbanked or unbanked households generally consist of:

Low-income

Less educated

Young families

Black and Hispanic

Disabled

Volatile income

2017 unbanked rates were lower or nearly the same than previous years. Yet, while black, Hispanic, and young households are less unbanked than ever before, these groups are still disproportionately unbanked.

Why Be Unbanked?

There are quite a few reasons why households remain unbanked. Those responding to the survey said:

7% said they don’t have enough money to keep an account.

2% said they don’t trust banks.

9% said bank account fees are too high.

9% said bank account fees are unpredictable.

Key Differences Between Banked and Unbanked/Underserved Households

Nearly all banked households had a checking account, and 78% had a savings account. Yet, savings account rates were much lower in low-income, less-educated, Hispanic, disabled, and rural households. Most banked households do not utilize bank tellers to perform banking transactions, preferring bank mobile access — particularly banked homes that fall into the high-income, more-educated, younger household, nondisabled, and volatile income categories. However, underserved households actually preferred to use bank tellers — although the study does not ask why (note that FDIC researchers stated they would dive deeper into why underbanked households utilize bank tellers more in a future study question).

Rather than using a checking account, underbanked or unbanked households more commonly used prepaid cards than banked households. They use these cards to pay bills, access cash at ATMs, deposit checks and direct deposits, and make purchases.

Credit Card Use

Mainstream credit cards (like Visa or American Express, etc.) were most used by banked households at a rate of 76.3%. On the other hand, only 7.2% of unbanked homes had a mainstream credit card, and 60% of underbanked homes did. Ironically, the reason why many underbanked/unbanked households don’t have mainstream credit cards is their lack of a credit score, which makes it very difficult to even obtain a mainstream credit card.

Possible Next Steps for Policymakers and Financial Institutions

There are a number of ways to better integrate unbanked individuals and households into the financial system. For example, new underwriting techniques can be adopted to help individuals with little or no credit history to begin building a credit score. Underbanked households can be encouraged to see the utility and advantages of mobile banking apps and payment services. Improve outreach efforts by bank tellers and greeters. Offer counseling and educational services that can provide helpful information about useful financial products and services.

About Todd William

Todd William is the founder and CEO of Reputation Rhino, an online public relations company in New York City serving small- and midsize businesses and individuals with a complete range of brand management and internet marketing services.